EQT, the biggest US natural gas producer, is spinning off its pipeline business

Key Points
  • EQT, the largest U.S. natural gas producer, will spin off its pipeline business into a separate, publicly traded company.
  • The deal follows EQT's purchase of Rice Energy last year and will merge the two companies' midstream businesses.
  • The announcement is something of a consolation prize to some investors who opposed EQT's purchase of Rice and instead advocated for a spinoff of EQT's midstream business.
Rig hands thread together drilling pipe at a hydraulic fracturing site owned by EQT Corp. located atop the Marcellus shale rock formation in Washington Township, Pennsylvania.
Ty Wright | Bloomberg | Getty Images

EQT, the nation's biggest natural gas producer, will spin off its pipeline business into a new publicly traded company, the Pittsburgh-based driller announced Wednesday.

The transaction represents something of a consolation prize to investors who objected to EQT's purchase of Rice Energy last year. Opponents led by activist investor Barry Rosenstein's Jana Partners had contended that splitting EQT's natural gas production and transportation businesses would better reward EQT shareholders.

Shares of EQT were up more than 1 percent Wednesday to about $52, after popping about 5 percent in premarket trading.

The spinoff will create the third-largest U.S. natural gas gathering company, according to EQT. The company says the deal will allow the two pure-play companies to attract an investor base attuned to their businesses, simplify financial results and more efficiently allocate capital.

Before their combination, both EQT and Rice operated midstream businesses — which transport oil and gas from wells to processing, transportation and shipping facilities — through limited partnerships.

The deal announced Wednesday will merge Rice Midstream Partners with EQT Midstream Partners, both of which are focused on the Appalachian region, the epicenter of the U.S. shale gas boom.

"The decision to build our midstream business in parallel with upstream growth has created one of the strongest midstream companies in the Appalachian Basin," James Rohr, EQT's lead independent director, said in a statement.

EQT's board of directors unanimously approved the deal.

The new company will be led by the president of EQT's midstream business, Jerry Ashcroft, who has more than 15 years of experience in the oil and gas industry, according to EQT. He was previously CEO of oil and gas infrastructure company Gulf Oil.

During his unsuccessful battle with EQT over its acquisition of Rice, Rosenstein pushed EQT to abandon the deal and instead spin off its transportation business into a separately traded company. Rosenstein alleged EQT executives sought to enrich themselves at the expense of shareholders in their pursuit of Rice.

Jana Partners holds a 3.7 percent stake in EQT, according to its latest regulatory filing. Last year, the hedge fund revealed a 5.8 percent stake ahead of its activist campaign.

On Wednesday, a spokesperson for Jana said the firm is pleased with the EQT's announcement.

D.E. Shaw, another hedge fund and EQT shareholder, had contended the Rice acquisition would benefit shareholders if EQT also separated its pipeline business and added independent directors with midstream experience, which the company announced in October.

"By moving ahead with the tax-free spin-off of the midstream business and merging EQM and RMP — following the previously announced addition of two new directors with midstream experience — we believe the Company has put itself on the best path forward for itself and all shareholders," Quentin Koffey, portfolio manager at D. E. Shaw, said in a statement.

EQT said shareholders will receive a pro rata share of the new company. EQT expects the deal to be completed in the third quarter.